HKB
[218] 253 U.S. 287 (1920).
[219] In Federal Power Commission v. Nat. Gas Pipeline Co., 315 U.S. 575, 599, Justices Black, Douglas, and Murphy, in a concurring opinion, proposed to travel the road all the way back to Munn v. Illinois, and deprive courts of the power to void rates simply because they deem the latter to be unreasonable. In a concurring opinion, written earlier in 1939 in Driscoll v. Edison Co., 307 U.S. 104, 122, Justice Frankfurter temporarily adopted a similar position; for therein he declared that "the only relevant function of law * * * [in rate controversies] is to secure observance of those procedural safeguards in the exercise of legislative powers, which are the historic foundations of due process." However, in his dissent in the Hope Gas Case (320 U.S. 591, 625), he disassociated himself from this proposal, and asserted that "it was decided [more than fifty years ago] that the final say under the Constitution lies with the judiciary."
[220] Federal Power Commission v. Hope Gas Co., 320 U.S. 591, 602 (1944).
[221] Federal Power Comm. v. Hope Gas Co., 320 U.S. 591, 603 (1944), citing Chicago & Grand Trunk Ry. Co. v. Wellman, 143 U.S. 339, 345-346 (1892); Missouri ex rel. Southwestern Bell Teleph. Co. v. Public Service Commission, 262 U.S. 276, 291 (1923).
[222] For this reason there is presented below a survey of the formulas, utilization of which was hitherto deemed essential if due process requirements were to be satisfied.
(1) Fair Value.--On the premise that a utility is entitled to demand a rate schedule that will yield a "fair return upon the value" of the property which it employs for public convenience, the Court in 1898, in Smyth v. Ames (169 U.S. 466, 546-547), held that determination of such value necessitated consideration of at least such factors as "the original cost of construction, the amount expended in permanent improvements, the amount and market value of * * * [the utility's] bonds and stock, the present as compared with the original cost of construction, [replacement cost], the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses."
(2) Reproduction Cost.--Prior to the demise in 1944 of the Smyth v. Ames fair value formula, two of the components thereof were accorded special emphasis, with the second quickly surpassing the first in terms of the measure of importance attributed to it. These were: (1) the actual cost of the property ("the original cost of construction together with the amount expended in permanent improvements") and (2) reproduction cost ("the present as compared with the original cost of construction"). If prices did not fluctuate through the years, the controversy which arose over the application of reproduction cost in preference to original cost would have been reduced to a war of words; for results obtained by reliance upon either would have been identical. The instability in the price structure, however, presented the courts with a dilemma. If rate-making is attempted at a time of declining prices, valuation on the basis of present or reproduction cost will advantage the consumer or user, and disadvantage the utility. On the other hand, if the original cost of construction is employed, the benefits are redistributed, with the consumer becoming the loser. Similarly, when rates are fixed at a time of rising prices, reliance upon reproduction cost to the exclusion of original cost will produce results satisfactory to the utility and undesirable to the public, and vice versa.